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A Fragile Recovery in 2021

Summary:
Although 2020 ended with a flurry of announcements reporting promising results in COVID-19 vaccine trials, there is little reason to expect a robust economic recovery anytime soon. Defeating the virus remains a monumental task, and the wounds inflicted by the pandemic will not heal easily. NEW YORK – By the end of 2020, financial markets – mostly in the United States – had reached new highs, owing to hopes that an imminent COVID-19 vaccine would create the conditions for a rapid V-shaped recovery. And with major central banks across the advanced economies maintaining ultra-low policy rates and unconventional monetary and credit policies, stocks and bonds have been given a further boost. Remove

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Although 2020 ended with a flurry of announcements reporting promising results in COVID-19 vaccine trials, there is little reason to expect a robust economic recovery anytime soon. Defeating the virus remains a monumental task, and the wounds inflicted by the pandemic will not heal easily.

NEW YORK – By the end of 2020, financial markets – mostly in the United States – had reached new highs, owing to hopes that an imminent COVID-19 vaccine would create the conditions for a rapid V-shaped recovery. And with major central banks across the advanced economies maintaining ultra-low policy rates and unconventional monetary and credit policies, stocks and bonds have been given a further boost.

But these trends have widened the gap between Wall Street and Main Street, reflecting a K-shaped recovery in the real economy. Those with stable white-collar incomes who can work from home and draw from existing financial reserves are doing well; those who are unemployed or partly employed in precarious low-wage jobs are faring poorly. The pandemic is thus sowing the seeds for more social unrest in 2021.

In the years leading up to the COVID-19 crisis, 84 of stock-market wealth in the US was held by 10% of shareholders (and 51% by the top 1%), whereas the bottom 50% held barely any stock at all. The top 50 billionaires in the US were wealthier than the bottom 50% of the population (a cohort of about 165 million people). COVID-19 has accelerated this concentration of wealth, because what’s bad for Main Street is good for Wall Street. By shedding good salaried jobs and then re-hiring workers on a freelance, part-time, or hourly basis, businesses can boost their profits and stock price; these trends will accelerate over time with the wider application of artificial intelligence and machine learning (AI/ML) and other labor-replacing, capital-intensive, skill-biased technologies.

As for emerging markets and developing countries, COVID-19 has triggered not merely a recession, but what the World Bank calls a “pandemic depression,” leaving more than 100 million people back on the verge of extreme poverty (less than $2 dollars per day).

After going into free fall in the first half of 2020, the world economy started to undergo a V-shaped recovery in the third quarter, but only because many economies were reopened too soon. By the fourth quarter, much of Europe and the United Kingdom were heading into a W-shaped double-dip recession following...

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